4. Use an Employee Stock Purchase Plan (ESPP)

An Employee Stock Purchase Plan (ESPP) is a company-sponsored program that allows employees to purchase company stock at a discounted price, often through payroll deductions. It’s a powerful financial tool that can help you build wealth over time.

Why ESPP is a Powerful Financial Decision

• Discount on Stock: Most ESPPs offer a discount (typically 10%-15%) on the company’s stock price, providing an immediate return on your investment.
• Tax Advantages: ESPPs can offer favorable tax treatment, especially if you hold the stock for a qualifying period.
• Forced Savings: Payroll deductions make it easy to save and invest consistently.
• Potential for Growth: If the company’s stock price rises, your investment grows even further.

Example: NVIDIA’s ESPP Plan

NVIDIA’s ESPP offers employees a leading ESPP. Here's how it works.

• You contribute up to 15% of your salary to the ESPP.
• At the end of the offering period, you buy NVIDIA stock at a 15% discount.
• ESPP offering price is the closing price on the first trading day after the month you’ve enrolled, and it remains your offering price for up to two years.
  This means you are buying Nvidia stocks on Feb 20, 2025, you are able to buy the Nvidia stocks at Feb 20, 2023 price, which is $24.16.
• If NVIDIA’s stock price increases during the offering period, your gains are even larger.

Assume:

• Your annual salary: $100,000
• You contribute 10% ($10,000) to the ESPP.
• NVIDIA stock price on Feb 20, 2025: $134.27
• NVIDIA stock price on Feb 20, 2023: $24.16

You buy the stock at a 15% discount on the lower price ($24.16), so your purchase price is $20.54. With $10,000, you can buy approximately 486.855 shares. If you sell immediately at $134.27 which is Feb 20, 2025's price, your profit is:

• Sale Value: 486.855 shares * $134.27 = $65370.02
• Profit: $65370.02 - $10,000 = $55370.02 (a 553.70% return).

Note that if you sell the stock within 1 year, then you will incur short term capital gains tax. Unless you believe the stocks will dramatically drop in value in the short term, try to hold the stocks for longer than 1 year in order to take advantage of long term capital gains tax instead.